Just 38.5 percent of defined-contribution plans included company stock in 2016, the Callan Institute finds. That's roughly a 10 percent decline from 2009, when 48.3 percent of plans offered the option of investing in company stock. At the same time, among employees the popularity of investing in company stock is on the rise.

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Sixteen percent of workers identified their employee stock purchase plan as their most important benefit, according to a 2016 Fidelity Investments survey, up from 10 percent in 2014. One in five employees surveyed said they anticipate their company's stock value increasing substantially in the near term, reflecting optimism about the extended bull market.

The appeal is simple, says Tom Lowry, a financial advisor and president of Georgia Wealth Advisors in Atlanta. "If you're investing in company stock, you're becoming an owner of that company. If the value of the company goes up, so does the value of your stock."

Although company stock can augment your portfolio, it's not without risk. Following a few ground rules could prevent your investment from being a bust.

Set reasonable limits. If you're investing in company stock at a discount through an employee stock purchase plan, it can be tempting to buy in at larger amounts, but that also increases the risk.

"If someone were to ask me, 'how do I get rich,' the answer would be to put a sizable percentage of your portfolio in an asset which stands a good chance of large appreciation," says Mike Serio, regional chief investment officer for Wells Fargo Private Bank in Denver. "Unfortunately, the answer to 'how do I lose all my money' is the same."

How much of your portfolio to allot to company stock depends on the company's risk profile. "People working for a high-growth company have a higher probability of garnering wealth than, say, a utility," Serio says. "But they also stand to lose significant amounts should things go wrong." You should also consider your long-term stability with your employer. When employee turnover is higher or there's a possibility of the company restructuring, your risk exposure is magnified.

Limiting that allocation to a set percentage reduces the risk of overweighting company stock. Rob Austin, director of research at Alight Solutions in Charlotte, North Carolina, says that when company stock is available as an investment option, plan participants invest an average of 10.5 percent of their portfolios in it.

Allocating no more than 10 percent of your total portfolio to company stock is a good rule of thumb, says Mike Piershale, president of Piershale Financial Group based just outside Chicago. But he also suggests considering the size of your portfolio outside your company plan. "If your 401(k) is worth $20,000 but you've got an individual retirement account worth $500,000, it's probably OK to go heavier than 10 percent in your employer's plan," Piershale says.

Take advantage of the tax rules. How your investments in company stock are held matters from a tax perspective. Investors who purchase company stock at a discount must know whether that stock is held inside or outside a qualified retirement account. "If an employee is buying company stock in a qualified account, they won't pay taxes on the gains until they start taking the money out," Lowry says. If the stocks are held outside of a 401(k), an employee should account for capital gains tax when selling any shares at a profit.

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Also, as retirement nears, consider how net unrealized appreciation can work in your favor. Net unrealized appreciation is the difference between the average cost basis of the shares of employer company stock that were purchased and their current market value, Serio says. When investors take a lump sum distribution, they owe ordinary income tax on the cost basis, with any appreciation over that amount taxed as capital gains.

"Net unrealized appreciation can be a big benefit for people who are retiring with company stock in their retirement account," Lowry says, because it allows them to save on taxes when moving those stocks out of a qualified account. If someone has $100,000 of company stock in a retirement account but paid $25,000 for the shares, that investor only pays taxes on $25,000 when transferring the shares to a non-qualified account. "Essentially, you can take the stock's growth out of your retirement account without tax penalties."

Exercise options when the time is right. If stock options are an employee benefit, you'll need to know when to exercise them, Piershale says. Exercising options in a nonqualified stock option plan allows employees to buy company stock at a pre-set price.

So, for example, assume you're given an option in year one to purchase 500 shares of company stock at the current market price of $50 a share. In year two, you exercise part of the option and buy 250 shares for $12,500. By this time, the market value of those shares has increased to $18,750. The difference between the option purchase price and the current market value means you've reaped a gain of $6,250.

Piershale says it's good to exercise nonqualified stock options in years when your income is lower if you're concerned about triggering short-term capital gains tax. Short-term gains are taxed as ordinary income.

Timing also matters when you're buying company stock through an employee purchase plan or your 401(k). Dollar-cost averaging can help smooth out any extreme pricing of the shares by buying them in regular installments over time, reducing the stock's average cost.

[See: The Fastest Ways to Lose Money in the Stock Market.]

A big mistake to avoid is buying in all at once while the stock is at a high. "Buying company stock isn't a get-rich-quick plan," Lowry says. "You can make a lot more money when you buy and hold that stock for a long time."